Dr Liam Fox is a former Defence Secretary and is MP for North Somerset.

This week we have seen some welcome announcements from the Government in the Strategic Defence and Security Review, recognising the risks that we now face in an increasingly unstable globalised environment. It is almost universally accepted that the first duty of government is the protection of its citizens, and as a former Secretary of State for Defence I naturally concur.

Today, the Chancellor will set out his response in another dangerous arena. There are other threats that I believe we have a right to be protected from: the debasement of our currency, the erosion of our earnings and the devaluation of our savings. I believe it is fundamentally wrong for governments to engage in structural profligacy, spending excessively across the economic cycle and passing ever larger amounts of debt onto future generations. It is, in short, the concept of honest money.

The policies of fiscal restraint imposed by the last Government have seen our annual budget deficit fall from the terrifying heights of the 11.4 per cent of GDP which we inherited from Labour in 2010, although at 5.7 per cent of GDP it remains the third-highest in the EU. As the U.K.’s national debt has grown from around £960 billion to over £1600 billion, so our debt interest has risen dramatically to around £50 billion per year, much more than we spend on our national defence and security. Despite the Chancellor’s drive for control over public spending, the job has been made more difficult by the government’s spending commitments. We need fiscal consolidation, but have guaranteed to leave untouched the budgets of the biggest spending departments, thus making a real rod for our own backs and producing major distortions in our spending patterns across Whitehall.

We are now facing the moment when the irresistible force meets the immovable object. The political imperative says that we must not tackle any of the sacred cows of public spending, yet the financial imperative says that unless we get our spending – and thus our debt interest – down, we will find it increasingly difficult to maintain the funding for these same areas.

In the immediate aftermath of a victorious General Election, the Chancellor has the best chance in the political cycle to be able to make major alterations to our spending plans and patterns. As he does so, he must make it clear that this is not a cyclical correction but a structural one and that we have passed, for all time, the high watermark of government spending as a share of our national income. We need to go back to the concept of sharing the proceeds of growth, only this time the proceeds need to be shared between deficit (and then debt) reduction and reductions in taxation, so that we can reward those who contribute to our national wealth through their hard work.

This brings me to another opportunity available to the Chancellor. We have long been fixated on the concept of GDP growth as the determinant of economic success. It is taken as read that a good GDP number is, in itself, a sign of economic success while a drop is immediately an excuse for political finger-pointing. Of course, we would much rather be living in an economy with a growing GDP, yet, as I and many others have often said, there is a difference between GDP and wealth creation, and it is the latter that ultimately determines our national prosperity. We create wealth when we take an individual’s ideas, their unique IP, and turn it into a good or a service for someone else to buy. At a recent speech at the Institute for Economic Affairs, I reminded the audience of the old Keynesian idea of burying £5 notes in bottles in mineshafts and having the private sector dig them up. It would certainly boost economic activity but do nothing for wealth creation.

So, are there other, better, ways to measure whether our policies are conducive to wealth creation itself? I suggest there is. If we take total government expenditure out of our GDP calculations then the resulting measure, GPP or Gross private product, gives us a much better idea of worthwhile economic activity. If we try to get a British perspective on this and look at the relationship between GPP and GDP over recent decades, the pattern is extremely interesting. If we construct a ratio between the annual percentage growth of GDP and GPP for the past 35 years, then it becomes surprisingly easy to predict who was running the economy.

Since 1979, the Conservative Party has been in office for 23 years. Despite steering Britain through two recessions and inheriting the financial disaster of the 2008 crash, under Conservative management GPP grew at a faster rate than GDP for 19 of those 23 years. By contrast, of the 13 years that Labour was in power between 1997 and 2010, 11 of them are characterised either by stagnation or contraction in the percentage of growth that originated in the private sector. In other words, Labour achieved their growth rates by pumping public money into the economy, with the net effect of crowding out the private sector wealth generation. We can also see the alternative – how the private sector is able to grow when it is given the space. The only surprise to me is that anyone would be surprised at all. I would urge the Chancellor to include this measure, GPP, in future financial assessments.

There is one other area where I believe the Government needs to reassess the economic position, although I accept that it is a controversial one. In the spring of 2009, the Bank of England introduced an emergency interest rate of 0.5 per cent – the lowest rate in over 300 years. Over six years later, it remains exactly the same. Is this the longest economic emergency in our history, deserving of such prolonged divergence from financial orthodoxy or has it proved to an ineffective cure for our economic ills that we now find at a practical and political level, too difficult to unwind?

An economy entirely geared towards borrowers, which is seen in some quarters as politically expedient, will not only become imbalanced, but will have a higher price to be paid in terms of increasingly angry borrowers the longer a decision on interest rates is put off. We also need to avoid the scenario where, in the case of a further global slowdown, policymakers have no short-term options. If we continue on our current trajectory of ultra-cheap credit and maxing out QE, then, should an economic slowdown arrive, as it will at some point, then policymakers would be no better than rollercoaster riders, without seatbelts, holding their hands in the air.

No one denies that it is difficult in democracies, to make painful financial decisions, but it is possible if we time it correctly in the cycle. The Chancellor’s instincts to achieve fiscal consolidation are deeply held and right. He should have our full support today if he is bold and brave. The country will thank us in the end.